Cuts conundrum: investigating likely feed-in tariff changes worldwide

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As we move further into 2010 the news of feed-in tariff cuts is becoming less and less surprising. Following the announcement this week that France plans to cut its subsidy rates for projects over 30m2, Bloomberg New Energy Finance has reported that this move may be followed by similar incisions in countries such as the Czech Republic, Ontario and the UK.

Countries all over the world are being faced with the issue of falling photovoltaics prices, coupled with looming CO2 emissions targets. When the cost of installing solar power falls, the amount of interest in this technology increases, and consequently the cost of subsidy payments is passed on to the consumer through their electricity bill.

“Rapidly declining costs associated with making solar PV panels are forcing governments to reduce the subsidies for clean energy shouldered by consumers when they pay for electricity from renewable sources,” an analyst at London-based BNEF said.

“When the tariffs were set, governments did not realize modules and systems would become so low-cost, so fast,” said Jenny Chase, lead solar analyst for BNEF. “We expect similar moves to cut PV feed-in tariffs from the governments of the UK, the Czech Republic and Ontario.”

Ontario

As of July 1, 2010, the amount of applications for photovoltaic systems installed under the micro-generation feed-in tariff in Ontario, Canada, reached 16,000. The majority of these applications have been for ground-mounted systems and thus, the Ontario Power Authority (OPA) has designed a FiT cut for any systems of this kind of 10kW or less, to stop the pressure this will place on tax payers.

Several sources are now reporting that more than 10,000 solar applications in Ontario are on now hold as a direct result of this cut. Without this change, energy and infrastructure minister Brad Duguid said that Ontario taxpayers would have had a CAD$1 billion price to pay over 20 years. “(It) would have been irresponsible for us to have let it continue,” he said.

“The OPA believes the new price category is fair, reasonable, more accurately reflects the costs associated with ground-mounted projects and maintains the long-term stability of the program,” says Colin Andersen, chief executive officer of the Ontario Power Authority. “It enables the program to continue to meet its original goals and provides proper value to both generators and ratepayers.”

Since the problem has become quite tangible in Ontario, these cuts are very likely to go ahead. However, all the applications that were received before the August 2 will still receive the previous rate.

Czech Republic

The Czech Republic's Prime Minister, Jan Fischer, called for a cut in the amount of incentives available for renewable energy in the country back in March. The Minister said that a cut to feed-in tariff prices is a 'priority' in the country, as without it the current boom of solar projects could lead to a 'significant' increase in electricity prices for consumers.

According to Fischer, the whole system of support for solar energy has been wrongly priced from the beginning. “It's a huge lesson,” said Fischer. “Therefore, in a number of laws which should be approved, (this should be) number one.”

Later in the year, lower house politicians in the Czech Republic approved the law to cut the incentives. The Czech parliament, made up of 200 members, voted 169 to one in favour of the decision to allow regulators to cut generous solar energy incentives that have triggered paranoia in the country of a steep rise in electricity prices and grid instability in the future.

The bill still awaits senate approval and the President's signature to become law. If passed, it will allow the Energy Regulatory Office, or ERU, to lower the feed-in tariff (FiT) for all new installations in 2011.

Again, this cut seems probable.

UK

The case is less clear-cut in the UK. The country's energy minister, Charles Hendry, in a recent interview with the UK newspaper the Telegraph, pointed to the possibility that the UK's generous FiT, announced on April 1, 2010 may also be subject to reductions in the next spending review.

“We inherited a situation where we could see who was going to benefit commercially but we couldn't really see how it was going to be paid for and that it would create pretty substantial bills,” said Hendry. “We [need to] make sure we're using the money in the most sensible way.”

Independent think-tank Policy Exchange's recent report, Greener, Cheaper, which looks at the importance of cost-effectiveness and seeking ways to achieve climate change goals, without needlessly sacrificing economic or social welfare, highlights how important the UK's FiT is at promoting renewable growth in the UK, while also recognizing the cost it passes on to the consumer. “The funding for microgeneration adds to all electricity bills, alongside other climate change mitigation measures, and there will be a limit to the public's acceptance of bill increases,” says the report.

However all areas of government spending, direct or indirect (such as costs being passed on to the bill payer), are subject to scrutiny in the spending review, the FiT included, and this must be taken into consideration. There is no solid evidence here to suggest whether the cuts will actually go ahead or not, since the FiT is so recently introduced with the aim of spurring solar growth, rather than slowing it down (such as in the case of Ontario and the Czech Republic).

We'll just have to wait and see on this one.

Since photovoltaics costs are declining as we speak, it is fairly likely that all FiTs across the world will need to be cut in order to keep a sensible level of installations, and thus a cap on the cost passed down to the tax payer from the energy provider. However, it remains to be seen when this will actually happen, especially to countries such as the UK, which have only recently introduced these measures in order to spur solar growth. Policy makers must remember that by cutting the feed-in tariff they run the risk of halting the renewable progress in the country, and therefore put themselves in danger of not reaching CO2 emissions targets.

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